Summarecon Agung. Batavia Stock Focus. Golden Year

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1 Summarecon Agung Golden Year Expecting higher revenue SMRA has achieved an impressive performance during Their Y- O-Y net profit is increasing steadily, supported by strong growth of its revenue from their development properties products, and we are expecting that their net profit in 2012F will also increase. However, this year their debt is increasing quite significantly because they require more funding in order to finance their capital expenditure. Positive catalyst from Summarecon Bekasi and Mall Serpong There are some catalysts which could boost SMRA revenue in the future, one of them is fly over that gives a better access to Summarecon Bekasi. If this fly over is already built then it would automatically increase the ASP of Summarecon Bekasi land. ASP for Bekasi at the end of year may become Rp 4-4,5 million/sqm or increase 20%. Second catalyst is Mall Serpong, which could contribute 6% to recurring income. Increasing recurring income SMRA has been increasing its recurring income and by now, the company has almost reached its recurring revenue proportion target of 30%. Future threats from fuel price hike, political risk, and competition The threats likely to face are the possibility of government to rise the fuel price, but it is likely will not happen within this year. If it happens, the construction cost for SMRA will rise and that can lead to increase in selling price and lowering of profit margin. General election also may bring some impact to SMRA since people tend to refrain from investing when there is change in government. Investors are afraid of adverse policy change that may harm their investments. The next threat is competition which is becoming intense. Initiate with Buy Rating We initiate SMRA with Buy ratings and 41% potential upside from current price. Our NAV-based valuation results in TP of Rp2193, implying 30% discount to NAV12 of Rp3132/ share. Research Team research@bps.co.id Stock Data Price Rp Rp 1550 Target Rp Rp 2193 Recommendation BUY 52-weeks range Rp Market Cap - Rp bn 10,585 Outstanding shares (mn shares) 6,873 Daily average volume ('000 shares) 10,806 Daily average value (Rp mn) 17,578 Major shareholder PT. Semarop Agung 25.06% PT. Sinarmegah Jayasentosa 6.92% Mellon Bank NA S/A BNY MASV 5.89% Credit Suisse AG Singapore Trust 10.25% Commisioner 0.30% Public 51.58% Stock price chart /1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 Source : Bloomberg JCI SMRA JAKPROP Financial Highlights Rp bn 2008A 2009A 2010A 2011A 2012F 2013F Revenue 1, , , , , , Gross Profit ,047 1,285 1,381 Operating Income EBITDA Net Profit EPS BVPS Key Ratios 2008A 2009A 2010A 2011A 2012F 2013F Gross Margin 40% 50% 44% 44% 46% 44% Operating Margin 18% 26% 23% 24% 28% 27% Debt to Equity ROAA 2.83% 4.14% 4.41% 5.51% 6.55% 6.52% ROAE 6.12% 10.16% 12.03% 16.92% 19.93% 18.07% P/E (X) P/BV (X) Source: Company, Batavia Prosperindo Sekuritas

2 Company highlight PT Summarecon Agung Tbk, is an Indonesian-based property development and management company. This company operates their business in three major categories that contribute to their revenues, 1.Property Development: this business unit is generating revenue by developing property products for sale such as residential house, apartment, residential land plot and commercial shop lot; 2. Property Investment: it contributes revenue by making property products for recurring income, they retaining their products and leased them out, their property investment products are, shopping malls, hotels, etc; and 3. Management and Leisure Hospitality: it contributes to the development of the township, which Summarecon currently manages three in Kelapa Gading, Serpong, and Bekasi. SMRA Business Strucuture 5% Year % Business Segments in IDR Sales (M) Development Properties Investment Properties Others - Hotels and Golf Club % Development Properties Investment Properties Others - Hotels and Golf Club Source: Company As per Dec 2011, Development properties become the first revenue contributor for the company (71%), followed by the Investment properties segment (24%), and other segment (5%). SMRA s Landbank and Capital investments Source: Company 2

3 Manageable Revenue SMRA has been successfully managing its property sales. Through allocating the units to be sold each year, the company is to some extend, able to gain from future increase in selling price. Besides, the company is increasing its recurring income, such as through shopping malls. Their new projects include hotels in Bali. All of these can lead to a more stable and bettersustained growth. SMRA Revenue Growth Billions 3, , , , , , Net sales CAGR 16% 2007A 2008A 2009A 2010A 2011A 2012F 2013F Net sales Source: Company Infrastructure-Supported Revenue The company is able to create synergy through developing several inter-related projects. In Summarecon Bekasi, a fly over will be built as a main access to the location which can potentially increase the selling price of the area. Besides, by having a shopping mall, the residential units will have more demand. In turn, the people living there will spend in the mall. SMRA will be able to get income from property sales as well as recurring income from the mall. 3

4 Solid Economic Growth As we know, Indonesia has solid economic growth seen from the GDP. It is forecasted that Indonesia s GDP will increase overtime, and that will give a good impact to business. SMRA s business is strongly correlated with GDP movement, because higher GDP means higher purchasing power of people for buying products like property. GDP-Correlated Business 7% 57% 9% 8% 7% 6% 5% 50% 40% 30% 20% 10% 7% 6% 6% 5% 56% 55% 54% 53% 52% 51% 50% 4% 3% 2007A 2008A 2009A 2010A 2011A 2012F 0% -10% 5% 4% 2007A 2008A 2009A 2010A 2011A 2012F 2013F 49% 48% 47% Revenues Grow th (RHS) GDP Grow th (LHS) Occupancy rate GDP Growth (LHS) From the chart above, we believe that strong economic outlook for Indonesia could lead to hiking of SMRA s revenues in the future. We can see some correlation between GDP growth and revenue growth as well as between GDP growth and occupancy rate of the company s recurring-income units. We are seeing that by having solid economic growth and low interest rate environment, it will lead to supportive environment for property industry since people s purchasing power will be higher and the cost of loan on mortgage loan (KPR) will be lower. Peer Comparison Property Companies Comparison Code Last Price Market Cap PER (X) PBV(X) 11-Jul-12 (Rp bn) 2012F 2012F SMRA 1,550 11, APLN* 340 7, ASRI* 485 9, BSDE* 1,091 21, CTRA* 643 9, DILD* 337 3, *Based on Bloomberg consensus for PER and PBV Source: Company, Batavia Prosperindo Sekuritas 4

5 SWOT Analysis Strength: Having strong reputation and brand name among developers in Indonesia Having a long experience as professional developer for about 30 years Highly specialized in market positioning Weakness Limited product mix Opportunities Opportunity to create synergy among its projects Low interest rate environment that can boost sales since some of their property sales are financed by debt Prospective hospitality and leisure business which is still under-developed Threats Possibility of fuel price increase Political risk related to election Rival competition Source: Batavia Prosperindo Sekuritas 5

6 Porter s Five Forces Bargaining Power Of Customers High switching cost of product High profile brand image Not many major competitors playing in SMRA area like Bekasi and Kelapa Gading Bargaining power of suppliers Huge number of raw material providers High volume purchase by SMRA enables it to get better bargaining power Threats From Rivals High number of competitors High barrier to exit from the industry High degree of operating and financial leverage may lead to price war Threat of new entrants Strong capital requirements to build projects High-end customers tend to place more trust on already-well-known brand Threats of Substitute Products No near substitution product Source: Batavia Prosperindo Sekuritas From the table above, we believe that the biggest threat for SMRA is the high degree of competition from existing rivals. The other threats like new entrants, bargaining power of customers and suppliers, and also substitute products do not become significant threats to SMRA business. 6

7 Initiating coverage with Buy rating We initiate SMRA with buy ratings and 41% potential upside from current price. Our NAV-based valuation results in TP of Rp 2,193, implying 30% discount to NAV. NAV Valuation Net Asset Value for 2012 (Company) Location Acreage (Ha) Market Value Effective (Rp) b A Landbank 1231 Summarecon Kelapa Gading Summarecon Serpong -Own land JO with JBC JO for The Springs Summarecon Bekasi -Own land JV with DSA Bandung Other properties and inventories B Investment Properties Sentral Kelapa Gading 2876 Sentral Gading Serpong 1298 Harris Hotel Kelapa Gading 205 Other Properties 935 Total Asset Value Cash and Equivalents 1496 Liabilities 1,548 No.of shares 7 NAV/Share 3,132 30% discount to NAV 2,193 Source: Company, Batavia Prosperindo Sekuritas 7

8 Financial Forecast (Rp Bn) FY09 FY10 FY F 2013F Income Statement Net Sales 1,198 1,701 2,359 2,799 3,149 COGS ,312 1,515 1,767 Gross Profit ,047 1,285 1,381 Total Operating Expenses EBIT Other Income/Expenses (74) 145 (34) (63) (79) Pre-tax Income Tax Expenses (75) (110) (142) (176) (189) Minority Interests Net Income Balance Sheet Assets Cash and Equivalents 633 1,120 1,496 1,524 1,673 Receivables, Net Inventories, Net 713 1,308 2,741 2,814 2,830 Others Property, Plant and Equipment Property Investments, Net 1,234 1,278 1,925 2,258 2,928 Total Assets 4,460 6,140 8,099 8,368 9,294 Liabilities Payables, Net Others LT Debt ,140 1,548 1,800 Total Liabilities 2,735 3,982 5,622 5,432 5,852 Minority Interests Shareholders' Equity 1,718 2,140 2,464 2,923 3,429 Capital Retained Earnings 1,025 1,207 1,531 1,990 2,496 Cash Flows Statement CFO Net Income Depreciation Changes in Working Capital (32) (462) 100 CFI (333) (167) (390) (500) (847) Undeveloped Land (266) (28) (80) Fixed Asset (24) (103) 81 (36) 36 Property Investments (23) (77) (746) (436) (803) Others CFF (183) Changes in Debt (164) (214) Dividend (19) (35) (69) (81) (86) Equity Others Changes in Cash

9 Head Office Chase Plaza, 12th Floor Jl.Jend.Sudirman Kav 21, Jakarta Tel : Fax : Research Team Andy Ferdinand Senior Analyst andy@bps.co.id Parningotan Julio Analyst julio@bps.co.id Yasmin Soulisa Analyst yasmin@bps.co.id Wisnu Karto Analyst wisnu@bps.co.id Hasan Research Associate hasan@bps.co.id Branches Jakarta Rukan Grand Puri Niaga Jl. Puri Kencana Blok K6 No.2P Palembang Jl.Rajawali No D Jakarta Barat Palembang Tel: Fax: Tel : Fax : Bandung Jl.Jend Gatot Subroto No.47 C Yogyakarta Jl Magelang No 91 Bandung Yogyakarta Tel : Fax : Tel : Fax : Medan Jl.Ir Djuanda No.16-J Makassar Ruko Ruby I No.9 Jl. Boulevard Panakukang Mas Medan Makassar Tel : Fax : Tel : (hunting) (sales) Fax : Surabaya Ruko Darmo Square Blok B No.8 Jl.Raya Darmo Semarang Thamrin Square Blok C-12 Jl.Thamrin No.5 Semarang Surabaya Semarang Tel : Fax : Tel : Fax : Malang Jl.Kahuripan No.5 Malang Tel : Fax : Batavia Prosperindo Sekuritas Investment Ratings: BUY expected total return of 10% or more; HOLD expected total return of -10% to 10%; SELL expected total return of -10% or less. Expected total return is defined as 12-month total return (including dividends). DISCLAIMER The information contained in this report has been taken from sources we deem reliable, however, PT. Batavia Prosperindo Sekuritas or its affiliates, cannot guarantee its accuracy and completeness. The views expressed in this report accurately reflect personal views of the analyst(s) about the subject securities or issuers and no part of the compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations and/or views in this report. Nothing in this report constitutes a representation that any investment strategy or recommendation contained herein is suitable or appropriate to a recipient s individual circumstances. This report is published solely for information purposes and should not be considered as a solicitation or an offer to buy or sell any securities. Neither PT. Batavia Prosperindo Sekuritas nor any of its affiliates and/or employees accepts any liability for any direct or consequential losses arising from any use of this publication. Copyright and database rights protection exists in this publication and it may not be reproduced, distributed and/or published by any person for any purpose without prior consent of PT. Batavia Prosperindo Sekuritas. All rights are reserved. Our report is also available at Bloomberg, BPSJ <GO> ISI Emerging Market,